Section 41(1) of the Income Tax Act, 1961 — Remission and cessation of trading liability- Sine-qua-non for application of Section 41(1) is that there should have been allowance or deduction claimed by the Assessee in any Assessment Year as a loss, expenditure or trading liability incurred by the Assessee.[2019] 52 ITCD 1 (BOM)
Facts: Being aggrieved of the order of Tribunal,revenue went on appeal before High Court and raised the question of law that "Whether on the facts and in the circumstances of the case and in law, the Tribunal being the final fact finding authority, is justified in not examining the unproven credit entries in the Balance-Sheet and in not invoking the correct provision of Section 28(iv) of the Act, if Section 41(1) invoked by the Assessing Officer, was found by the Tribunal not to be the appropriate provision to tax the impugned amount of Rs. 4,11,27,086/-?"
Held, that sine-qua-non for application of Section 41(1) is that there should have been allowance or deduction claimed by the Assessee in any Assessment Year as a loss, expenditure or trading liability incurred by the Assessee. Subsequently, if any remission or waiver is granted in respect of which such an allowance/deduction has been claimed, then the Assessee is liable to pay tax on the amount waived/remitted under Section 41(1). This, as the Court held is only to ensure that Assessee does not keep double benefit – one by way of deduction and another by waiver of the amount, which has already been deducted in computing the tax. In this case admittedly, no benefit in respect of the loan has been claimed by the assessee in respect of Rs 4.11 Crores, in an earlier Assessment Year.Tribunal had come to a finding of fact that transaction was on Revenue’s account and not on capital account. Therefore, the waiver of loan was chargeable to tax.